Tanking crude prices hit Mississippi oil economy hard

The price of U.S. crude oil is hitting a record low. The trickle down effect from the low cost is hitting Mississippi businesses in the oil industry hard. This file photo shows Endeavor Energy Resources LP's Big Dog Drilling Rig 22 in the Permian basin outside of Midland, Texas in December 2014.(Photo: Bloomberg)

Consumers are paying less at the pump for gas but, as oil prices drop, experts question if Mississippians will pay more in the long run.

Sitting below $27 a barrel and falling, the price of U.S. crude oil is hitting a record low. At the gas pump, the low price per barrel means savings for the consumer.

However, the trickle-down effect is hitting Mississippi businesses in the oil industry hard.

Ben Thompson, the Mississippi and Alabama Division president of the U.S. Oil and Gas Association, said the low prices have been "devastating" for the state.

Thompson said independent oil producers in Mississippi, those that employ anywhere from 50 to more than 500 employees, have had to drastically cut back on operations. He said there have been significant layoffs as well.

"Times are pretty dark," Thompson said.

Kent Meadows, vice president of NGV Solutions, said his natural gas conversion business is suffering as a result of low oil prices.

"It's drastically affected this business," Meadows said. "In the natural gas business, if you follow the string, you’ve got land owners who don’t have royalties coming in today because the production is down; you’ve got exploration companies in Mississippi that are laying off workers; you’ve got the supply industry that has laid off workers, they’re not selling equipment. It’s killed a lot of them.”

“Energy has always been an incredible part of our economy,” Barbour said. “From when the British dropped anchor at Jamestown in 1609 and every day since, energy has been an enormous part of the competitive, economic advantage of the United States of America…America has been a place where energy has been an essential element for our economic success and that’s why I believe in abundant, affordable American energy. We have seen, not only in our lifetime but in recent years, an immense change in the cost structure. All of a sudden we have seen cost of energy be driven by supply and demand, by market forces we’ve had an enormous increase in supply in oil and gas in recent years, primarily driven by the United States."

Saying the United States has increased oil production by 4 million barrels a day, Barbour said, “Where very shortly, North America, Mexico, Canada and the United States can be self-sufficient in oil.”

Referencing the oil embargo of 1973, Barbour said, “the idea of North America being self-sufficient would have been a wonderful dream back then.”

The supply of oil is greatly outpacing the demand, a point Barbour noted.

“Supply and demand is not the only thing that’s having an enormous effect on energy in America,” he said. “Government regulation. Subsides are also having a big effect, and we should also recognize that technological change is often driving supply and demand.”

Patrick Sullivan, president of the Mississippi Energy Institute, said hydraulic fracturing, also known as fracking, is responsible in part for the abundant oil supply in the United States.

“An explosion in oil and natural gas production, because the new technology and method that was developed to extract oil and natural gas out of tight formations, most on private lands, in my opinion, is one of the most significant economic events to ever happen in the U.S., and we’re seeing the impact of it today in low oil prices, gasoline prices, natural gas prices and our own electricity prices.”

He added, “In the past, everybody knows that OPEC was the major influencer in what amount of oil was available in the world and what impact that had on supplies and prices and because of what happened with shale oil and gas production over the last 10 years; the U.S. is now much more of a major contributor to the world market.”

However, the increase in supply is outpacing demand, creating a vacuum, Sullivan said.

“Now, with where the prices are, the industry is a victim of its own success,” he said. “It was so successful in increasing supplies that the price has collapsed to where it is. That’s painful to a lot of business, it’s painful to a lot of communities and a lot of states, and I think it’s having a noticeable impact on the country.”

According to the Bureau of Labor Statistics, Mississippi’s mining and logging workforce lost approximately 1,000 workers from January 2013 to November 2015, the latest data available.

Sullivan said Mississippi’s energy workforce makes up 25 percent of the state’s workforce.

"For Mississippi specifically, yeah, there are absolutely impacts because most of where the activity is is out in the rural areas," he said. "We see the positive impacts at the pump. Consumers love that but the negative impacts are out where the jobs are, in the fields."

Comparing Mississippi to Texas and North Dakota, Sullivan said, "The impacts and the loss of oil field-related jobs in those places may not be quite as noticeable in Mississippi. They’re a very significant part of our economy but not as big in our economy as other places."

“You look back to how slowly the U.S. has come out of the recession and you think, what types of economic activity were taking place during the recovery. By far, by far, the largest amount of economic activity was due to what was happening in oil and natural gas out in the oil fields. The indirect impact that was having in communities and across the U.S., and also making manufacturing competitive in the U.S., now that’s starting to go away because the prices have come down so much. As a result of that, everybody can feel more of a drag on the economy because we’re losing part of that.”

The Chevron Refinery in Pascagoula has yet to see a loss in its workforce. The refinery employs approximately 1,500 people and has not had any layoffs as a result of the low crude oil prices, according to Alan Sudduth, public and governmental affairs manager.

Crude prices are on Chevron’s “upstream” side and deal with obtaining and selling crude. The refinery is on the “downstream” side.

The price of crude oil does not have as much as an effect on the downstream side as it does on the upstream side, Sudduth said.

“We are certainly sensitive to cost, we’re doing our best to operate in a way that is cost-conscience without sacrificing safety, but we are looking to see how we can continue to add value to the overall business and the company as a whole,” he said.

Sullivan said a fluctuation in crude oil prices is expected.

"The industry has always been cyclical; as with most commodities to varying degrees, prices go up and prices go down and the reason is fluctuation in supply and demand," he said. "We learned in our very first economics class that when you want the price of something to go down, you get the supply to go up and with energy, for the most part, that’s what consumers want. The want the price of it to be low and affordable."

He added, "If our goal as a country is to encourage growth, now, with affordable and low energy costs then the policy should always be focused on increasing of supplies."

Reflecting on buying gas for 30 cents a gallon in his youth, Barbour said, “the fluctuation of energy prices in our country and in the world — because it is a worldwide commodity — are just simply unbelievable.”